What is to be done? The future of industrial relations

We live in a time of great debate and discussion about our industrial relations system.

But before outlining my vision of what the future of IR should look like in this country I want to spend a bit of time considering the current debates and issues.

This article is an edited version of an address by Meredith Hammat,

Secretary, UnionsWA (pictured) to the Chamber of Commerce and

Industry WA The Future of Industrial Relations Conference on 22 April 2015.

Those of you who spent the end of your summer break reading the Productivity Commission’s discussion papers which were released in late January will know that this body has sent out a wide-ranging agenda that they will consider over the course of this year.

The current level of surround sound suggests that our current system is broken and need in urgent repair.

The way we understand our current challenges and problems informs what we think the future will look like.

My starting point is to have a look at a few key elements of the current public debate about IR in Australia by posing the question – what problem – or problems - are we trying to fix by these notions of ‘reform’?

And then in the second part of my address, I want to consider what the future of IR might look like.

In short – before we answer the question what is to be done? we have to consider the question: what exactly is wrong with the current system?

What is the Problem?

In Australia we have a strong cultural norm that workplaces should be both productive and fair. Many who have been students of industrial relations at some stage couldn’t have escaped without learning about the Harvester case.

The Harvester decision – for those of you who didn't learn about it, or perhaps just weren't paying attention during those lectures went like this:

In 1907, the then Court of Conciliation and Arbitration set a minimum wage for unskilled labourers of 2 pounds, 2 shillings per week the amount an average worker paid for food, shelter and clothing – for him and his family; his family being his wife and two children.

The Harvester judgement has long since been abandoned as a key consideration for setting the minimum wage, but it illustrates that Australian society continues to have a widely and deeply held view that our industrial system is not just about the economic outcomes.

It’s also about social outcomes and it’s about fairness.

The Harvester decision – at its heart – recognised something which remains as true today as it was in 1907. For working people their job and their wage is not just an abstract concept in an economic model.

A workers’ job is their financial security, it’s their retirement security. For workers their job, their incomes, their employment security is deeply personal.

In Australia we have a long history and a strong prevailing cultural understanding that industrial relations is not just about productivity – it’s also about fairness. So in looking at the current IR system I am going to consider both productivity and fairness in my comment today.

Productivity

There is a great deal written and spoken about productivity in Australian workplaces and in any discussion about productivity, let’s start by separating out labour productivity from other determinants of productivity.

In labour productivity terms, Australian workers are among the most productive in the world.

At $53 gross value added or output per hour worked they are well ahead of the OECD average of $46.

In the post GFC period since 2007 Australian labour productivity growth outpaced the OECD

Over the long term, since 1973 labour productivity has been steadily growing but multifactor productivity has performed less convincingly.

Multifactor productivity has been letting us down. In other words new technologies, better economies of scale, managerial skills, innovation, training, skills development were key to our falling productivity.

Where has been the public outcry?

We are yet to have any kind of debate like that.

Instead many continue to assert that productivity is falling and the only solution lies in making working people do more for less.

The second great problem in the productivity debate is the lack of meaningful measurement in workplaces.

Study after study confirms that Australian businesses mostly have little or no understanding of productivity in their workplaces.

A tiny 9% of firms measured both capital and labour productivity. And 55% simply did not measure productivity at all.

If those firms in the oil and gas industry with all their resources and capacity can’t or won’t accurately measure productivity then consider for a moment how much harder it is for those in service industries and small business.

I spoke earlier about the Harvester judgement. One of its assumptions was that women had no place in the workforce at all. In effect the contribution of women to the productivity of the nation was to all purposes - invisible.

Today, even though vast numbers of women have moved from unpaid domestic work into the paid workforce it is still likely that much of their contribution is the most likely to not be measured because they are concentrated in service industry and smaller enterprises.

How are we to measure the productivity of our child care workers, our teachers, our nurses and other carers? We all know that a brilliant teacher or early childhood worker can transform the life and prospects of our children. But how do we measure and value that? In the majority of cases we simply don’t measure it and consequently don’t value it.

Now I want to be clear on the question of productivity.

Australian workers and their unions care a great deal about the productivity of Australian workplaces.

The members that I represent understand that their employment security depends on them being able to continue to work in competitive, productive workplaces.

We want workplaces to succeed.

Any debate about productivity must be based on a proper understanding of the issues we face.

Are Australian workers the cause for the current malaise in productivity? Well the evidence tells us that labour productivity has been on a steady increase for about 40 years. Whatever the reasons for declining productivity, it seems pointless to keep blaming the workforce or the IR system.

The absence of proper understanding about labour productivity means that much of what passes as public debate is simply self-serving rhetoric about reducing pay and entitlements, slashing workforce numbers or increasing the use of causal or insecure workers.

It’s too easy for too many to deliberately confuse productivity with profits.

Not surprisingly many workers are heartily sick of a debate around IR that casts them as unproductive (when it’s simply not true) and doesn’t properly value of the work they do.

Finally it’s worth making the point that even if labour productivity was the problem, I am not convinced that the Productivity Commission’s review would be well placed to make recommendations to fix it.

So often the debate around productivity in Australia is conducted in terms that suggest Governments have policy levers they can pull to either constrain or restrict our productivity growth.

This focus sadly ignores the fact that the primary determinants of productivity performance are at the firm level, not at the macro level

If we are serious about improving productivity we need a public discourse that recognises improving productivity requires investment in infrastructure and technology. It requires a commitment to innovation, workforce consultation, improved skills development and improved management and leadership skills.

The Productivity Commission is unlikely to make any recommendation that will fix these things. Labour productivity has been constant during both the years of WorkChoices and the years of the Fair Work Act, so changing the IR system is unlikely to make the changes that will boost productivity in workplaces.

Fairness

I now want to address the question of fairness in Australian workplaces which I believe is the other central pillar of the Australian IR system.

In short, wages in Australia haven’t kept up with labour productivity. (See Matt Cowgill on this here)

Productivity has been steadily increasing since the 1970s – it’s more than doubled. But wages have been increasing at a much slower rate.

Perhaps the only crisis in labour productivity is the fact workers are getting a smaller and smaller share of it.

Wages growth has also slowed to 2.5%, well below the long term average of just about 3.5%.

If one breaks down the growth in wages it’s clear that earnings growth has been unequal, with those on the highest incomes receiving more.

Between 2007-2012 the top 10% enjoyed wages growth of 2.5% those on the minimum wage only experienced wages growth of 0.8% over the same period.

Consider that the full time adult minimum wage in Australia is $640 per week. The majority of these workers are struggling to get by. To have experienced such low growth in their already low wages while essential costs of living have skyrocketed means these people are increasingly under pressure.

Little wonder then that a recent survey by the ACTU of over 50,000 people found that more than 76% feel they are either not coping or only just coping to get by.

The public cries to cut penalty rates for those in hospitality and retail workers is just another way of dressing up a pay cut for some of the lowest paid, most vulnerable workers.

Consider that employees in the retail industry earn less on average than other workers. In 2011, the average weekly earnings for all retail employees was just 61% of the average wage.

It’s because many of them are part-time, perhaps working on junior rates (which sees them paid as less than an adult until they are 20 years old).

Even for full-time adult employees, their earnings are only ¾ the average across all industries.

From the tone of the public debate you would think it was impossible to get a take away coffee on a weekend in Perth.

Over the past 20 years all around Australia the relative share of retail and hospitality income going to profit hasn't changed and today there are more shops, cafes and restaurants open at nights and weekends than ever before.

Employers have been championing cutting penalty rates for decades. The debate about penalty rates is not about the changing nature of Australian society and our need to eat out on long weekends. It’s part of a longer term agenda to cut worker entitlements.

This from the Canberra Times in 1984 shows the CCI were after the weekend penalty rates of workers even then –at this time it was an attempt to take them from mostly female workforce in private hospitals - nursing, domestic and clerical staff.

Today it’s the mostly women in retail and hospitality in the firing line.

As far back as 1949 employer groups were arguing that penalty rates for night work would result in increased unemployment.

Is any of this starting to sound familiar?

Trying to drive down wages in an environment where wages growth hasn't kept pace with labour productivity, where those at the bottom have got least in terms of wages growth speaks to a system without any sense of fairness.

No wonder workers are deeply concerned about the direction this country is going in and remain deeply distrustful of the Abbott Government agenda and employer calls to reduce penalty rates.

Perhaps many of you saw the story from last week of the CEO from Gravity Payments in the US. He cut his $1 million salary to $70,000 and will lift the salaries of his employees to at least $70,000 per year.

This CEO was not just motivated by altruism. He was also responding to a survey from Princeton University that found that a salary of around $75,000 was the perfect salary for employee happiness.

He was probably also influenced by findings that employees rate being treated well and fairly as among their top reasons for deciding to remain in an organisation.

Examples like this remind me how far away we are from a considered debate about how to build the high trust, high performance workplaces that we need in Australia.

Instead the current Productivity Commission review seems to traverse the same old ground of cutting wages – both the minimum wage and penalty rates, increasing employee insecurity by attacking unfair dismissal protections and exploring new ways increase contracting out and other forms of insecure work.

The current Productivity Commission review and the regular front page stories miss the opportunity to have an adult discussion about what kind of IR we need to help make our workplace fair and productive.

What is to be Done

I want to offer three broad areas for consideration.

Workforce participation

Firstly we need to improve equality of participation in the workforce.

Consider the gender pay gap – in WA women earn about 26% less than men when comparing full time male and female earnings. The gap is much bigger when part-time work and overtime payments are taken into account.

Pregnancy discrimination remains rife. The recent HREOC report into Pregnancy Discrimination found that 1 in 2 parents report being discriminated against at some point during pregnancy, maternity leave or return to work.

For so many women the discrimination and barriers encountered when they try to return to work means they are forced into insecure work arrangements with all the loss of entitlements and protections.

Women should have the right to return to work after maternity leave to their existing role on a part time basis if that is want they want. The current provisions which only allow women the right to request that – without any right to appeal the decision – do not go far enough.

I know many talented, skilled professional women who have simply given up on working, after having a family because workplaces don’t provide genuine options that allow them to balance their work with their family commitments.

It makes good business sense to accommodate working parents and it just isn’t that hard if we really have the resolve to make it happen.

We are also need to do better for our young people.

I have heard too often that there must be something wrong with young people today and this is the reason they are unable to secure apprenticeships and other training opportunities.

I don’t accept that there is anything different about young people today. It has always been the case that those of us in middle age shake our heads and de-cry the poor standard of the ‘youth of today’.

Parents of the 1950s were doing it.

Our parents were doing it when we were young people.

And of course we do it still

Young people are struggling to find the employment and training opportunities they need because Government funding and inadequate tests for temporary overseas workers have meant these opportunities are becoming too scarce.

In the key trades of automotive and construction apprentice numbers in WA have been consistently falling and overall there are now 1,700 fewer apprentices and trainees and this is the worst result in WA for five years.

Funding for TAFE has been cut. In WA, TAFE has lost $45 million from their budget and the cost of courses has been pushed so high that for many young people and their families they may simply not be able to afford to go.

We need to get serious about supporting young people in training and employment opportunities.

While the union movement supports skilled migration as a way of filling genuine skills shortages, I am concerned that Government has created an easy supply of workers on temporary visas that have acted as a disincentive to industry doing the important work of training young people.

We know that those on visas are often underpaid and exploited.

A recent audit by the Fair Work Ombudsman found that 40% of those on 457 visas were underpaid, not performing in jobs they were supposed to do or no longer employed by the person who had sponsored their entry to Australia.

Finally on the question of access to the labour market it’s worth noting that the current Federal Government push to extend the idea of retirement age past our 60s and into our 70s means that we will need to consider the labour market participation of older workers.

It’s all well and good to have Government tell us we need to work further into our twilight years but age discrimination means it’s often difficult for workers over 50 to find a new job if they need it. Many in the manual trades will simply be unable physically to continue working that long.

We need to be thinking much more about labour market participation – not just as a way of addressing some key inequalities in society but as a way of harassing productivity improvements into the future.

Women, older workers and young people denied the opportunity to use their skills, education and talents are an enormous waste to our national economy. Take for example, research commissioned by the G20 last year which found that closing the gender pay gap and increasing women’s workforce participation would result in a 6% boost to the economy.

Why aren’t we fixing the gender pay gap if we are serious about productive workplaces for the future?

Secure jobs

We also need to be considering the question of insecure employment. 40% of Australian workers who are employed on some kind of insecure work arrangement – contractors, casuals, labour hire employees or those on short term contracts.

We need to do much better to ensure these workers have access to entitlements that are portable. We need to have mechanisms that allow casuals to convert to permanent employees. We need to stop treating labour hire employees as second class citizens.

We also need to have much stronger laws to prevent sham contracting.

Increasingly insecure work is the norm for those into their thirties – affecting the ability of those workers to get a home loan, their ability to have a family. And unless we address the increasing incidence of insecure work it will affect the retirement incomes of this generation and the next.

Bargaining rights

Finally I think we need to improve the bargaining framework in this country. Where workers want to get together and pursue a pay rise they should be free to do so.

They should also be able to bargain with their employer without restriction on the content of their industrial agreements.

We also need effective dispute resolution mechanisms in place where employers refuse to bargain in good faith, particularly where this happens in the context of a first agreement.

We should also be ensuring our bargaining system is consistent with international standards and obligations.

Recognising and protecting the important role of unions in the workplace should also be central. Employers have free access to their representatives and professional associations as evidenced by the large turnout here today.

Workers should also be free to access their representatives at work. It’s worth making the point that many studies have confirmed the important role that unions play in building high trust workplaces.

The union movement has always advocated that we need to take the high road towards a high wage, high productivity future.

I have outlined a few of the things that I think should be central to our public debate about what the future might look like.

So much of what passes for debate about industrial relations at the moment will just lead us down the low wage, low productivity path. I don’t believe we have any chance of long term success and prosperity if we take this road.

Unless we are really saying we are prepared to accept the appalling wages, safety and living standards that are so evident in so many other countries around the world, particularly in SE Asia.

I think to achieve a bright and prosperous future for Australian workplaces we need to have a very different debate about IR. Fundamentally we need to recognise at its heart, IR is about people – their lives, families and aspirations.

Sadly there is little evidence of any of that happening at the moment.